But the council’s former regeneration chief said the way the decision was reached was “disgusting”.

Kirklees owns the freehold to the iconic Almondbury site, which includes the Grade II listed Victoria Tower.

The Thandi Partnership bought the lease to Castle Hill Hotel in 1998, which was later demolished.

The company came up with a proposal for a 14-bed boutique hotel on the site in 2007.

But a report drawn up for the council said the plan was unlikely to get planning permission or be commercially viable.

The council’s head of planning Jonathan Barrett told yesterday’s Cabinet meeting: “Castle Hill is of such significance and its location is so sensitive that any development of any description needs to respect these very special circumstances.

“The council is unlikely to support any development of the type proposed at this location.”

Cabinet member Clr John Smithson, who represents the area, agreed. The Almondbury Lib Dem said: “I think it’s extremely doubtful that any scheme could be feasible on that hill.

“This has been a long drawn-out struggle which has cost us money.”

But Clr Ken Sims, who was in charge of regeneration from 2006 to 2009, criticised the Labour / Lib Dem Cabinet for publishing the report.

The Holme Valley South Conservative said: “I think it’s disgusting that you’ve breached business confidentiality. You didn’t even think to send the Thandi Partnership a copy of the report.

“How can you expect major developers to be confident of working with Kirklees when they see the lack of ethics in the council? To say in public that a hotel is not viable is the wrong thing to do.”

Clr Sims added that there had been a business on the hill for many years. He said: “There was a pub on the site in the 1800s before the tower was there. Surely that’s a precedent.”

Kevin Drayson of architects One17 defended the boutique hotel plan. He said: “The proposal was an indication of the type of scheme. It was a case of testing the water.

“Part of the scheme was intended to permit some sort of visitor facility.”

The Cabinet unanimously supported council officers’ recommendations that a 14-bed hotel was not viable at the site.

The Thandi Partnership have until October 31 to come up with a new proposal.